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1、,9 THE REAL ECONOMY IN THE LONG RUN,25,Production and Growth,Production and Growth,A countrys standard of living depends on its ability to produce goods and services.,Production and Growth,Within a country there are large changes in the standard of living over time.,Production and Growth,In the Unit
2、ed States over the past century, average income as measured by real GDP per person has grown by about 2 percent per year.,Production and Growth,Productivity refers to the amount of goods and services produced for each hour of a workers time.A nations standard of living is determined by the productiv
3、ity of its workers.,Table 1 The Variety of Growth Experiences,Copyright2004 South-Western,ECONOMIC GROWTH AROUND THE WORLD,Living standards, as measured by real GDP per person, vary significantly among nations.,ECONOMIC GROWTH AROUND THE WORLD,The poorest countries have average levels of income that
4、 have not been seen in the United States for many decades.,ECONOMIC GROWTH AROUND THE WORLD,Annual growth rates that seem small become large when compounded for many years. Compounding refers to the accumulation of a growth rate over a period of time.,PRODUCTIVITY: ITS ROLE AND DETERMINANTS,Producti
5、vity plays a key role in determining living standards for all nations in the world.,Why Productivity Is So Important,Productivity refers to the amount of goods and services that a worker can produce from each hour of work.,Why Productivity Is So Important,To understand the large differences in livin
6、g standards across countries, we must focus on the production of goods and services.,How Productivity Is Determined,The inputs used to produce goods and services are called the factors of production.The factors of production directly determine productivity.,How Productivity Is Determined,The Factors
7、 of ProductionPhysical capitalHuman capitalNatural resourcesTechnological knowledge,How Productivity Is Determined,Physical Capitalis a produced factor of production.It is an input into the production process that in the past was an output from the production process.is the stock of equipment and st
8、ructures that are used to produce goods and services.Tools used to build or repair automobiles.Tools used to build furniture.Office buildings, schools, etc.,How Productivity Is Determined,Human Capitalthe economists term for the knowledge and skills that workers acquire through education, training,
9、and experience Like physical capital, human capital raises a nations ability to produce goods and services.,How Productivity Is Determined,Natural Resourcesinputs used in production that are provided by nature, such as land, rivers, and mineral deposits.Renewable resources include trees and forests.
10、Nonrenewable resources include petroleum and coal.can be important but are not necessary for an economy to be highly productive in producing goods and services.,How Productivity Is Determined,Technological Knowledgesocietys understanding of the best ways to produce goods and services. Human capital
11、refers to the resources expended transmitting this understanding to the labor force.,FYI: The Production Function,Economists often use a production function to describe the relationship between the quantity of inputs used in production and the quantity of output from production.,FYI: The Production
12、Function,Y = A F(L, K, H, N) Y = quantity of outputA = available production technologyL = quantity of laborK = quantity of physical capitalH = quantity of human capitalN = quantity of natural resourcesF( ) is a function that shows how the inputs are combined.,FYI: The Production Function,A productio
13、n function has constant returns to scale if, for any positive number x,xY = A F(xL, xK, xH, xN)That is, a doubling of all inputs causes the amount of output to double as well.,FYI: The Production Function,Production functions with constant returns to scale have an interesting implication.Setting x =
14、 1/L,Y/ L = A F(1, K/ L, H/ L, N/ L)Where:Y/L = output per workerK/L = physical capital per workerH/L = human capital per workerN/L = natural resources per worker,FYI: The Production Function,The preceding equation says that productivity (Y/L) depends on physical capital per worker (K/L), human capi
15、tal per worker (H/L), and natural resources per worker (N/L), as well as the state of technology, (A).,ECONOMIC GROWTH AND PUBLIC POLICY,Governments can do many things to raise productivity and living standards.,ECONOMIC GROWTH AND PUBLIC POLICY,Government Policies That Raise Productivity and Living
16、 StandardsEncourage saving and investment.Encourage investment from abroadEncourage education and training.Establish secure property rights and maintain political stability.Promote free trade.Promote research and development.,The Importance of Saving and Investment,One way to raise future productivity is to invest more current resources in the production of capital.,Figure 1 Growth and Investment,Copyright2003 Southwestern/Thomson Learning,
